It’s no surprise that federal interest rates have skyrocketed and so have the cost of agriculture inputs. Pinion Ag Business Advisor Thomas Eatherly says as expenses are coming to an end this year, there are some major areas that are coming in over budget.
“Fuel was a big one. As we all know and saw firsthand, fuel costs rose tremendously. And as we’re tying-out our numbers, overall, it looks like we will be around eight to 12 percent over budget. And then there’s obviously additional factors depending on what graphical location your operation is located, as far as irrigation, grain drying, and trucking. Those are all major costs that can affect those numbers throughout an operation.”
Interest rates, crop inputs and equipment repairs all came in over budget as well.
“Repairs, we originally budgeted about 15 to 20 percent overall increase of our budget year over year. and looks like we’re going to end up around 30 percent over due to supply chain shortages and cost of inflation. For the most part seed and fertilizer costs were locked in ahead of this year’s planting season. The bigger issues were the additional products that were added to the blends and availability of certain chemicals after we’d already started. And then we have interest rates. Cash flow needs are increasing due to demand for locking in prepays at decent prices. We think this is probably the most expensive crop we’ve had on record in a long time, so farmers need to understand what the opportunity cost is for borrowing money.”
Eatherly says inflation is impacting everything on the farm.
“Right now, everything a farming operation touches is inflated. Even though commodity prices are at an all-time high and higher they’ve been in the past, it all comes down back to a farm’s profit margin, and right now the outlook is very thing for margin because the inability to lock in some of our biggest calls in a profitable range.”
Eatherly says there are a few things farmers can do right now to help insulate their operation from inflation over the coming year.
“We’re encouraging our growers to save their working capital and understand how they use their own money to operate off of. Putting off some of those big capital expenditure projects until next year, save money on interest by not borrowing it, meaning that we’d like to operate on as much of our own money as possible. Don’t hire out any work that we can do ourselves. Farming is already an extremely hard and labor-intensive business, and we know that working smart and utilizing your assets will pay off. Take a profit if the market gives it to you, business owners cannot afford to strike out when the cost of growing crop is the highest we’ve seen in a long time. We want to encourage all of our farmers to really nail down their costs, look at their cash flow and make every dollar count.”
Pinion is helping farmers prepare for inflation rates that are predicted to remain high for the foreseeable future.
“We work with producers all over the country and we can draw from our collected data and information to help inform our clients on current trends, best practices, and share relevant insights to their operations. Being in the field with clients allows us real time ability to help clients navigate through the challenges of today. And Pinion helps farms access their margin management, which is arguably the most important factor going into 2023.”
Pinion has strategic advisors that can help simplify and navigate the year-end planning process and position your farm business for success in 2023. To learn more, visit PinionGlobal.com.